Good Morning. Sterling fell to its weakest in 10 days against the US Dollar yesterday, and unwound some of the previous session’s gains versus the euro, weighed down by banking sector concerns and worries over UK fiscal health in the run up to the pre budget report this week. At 08:30am rates are as follows:
- GBP/EUR 1.1045
- GBP/USD 1.6368
- GBP/AUD 1.7962
- GBP/NZD 2.2950
- GBP/CAD 1.7228
- GBP/JPY 145.66
- GBP/ZAR 12.246
- EUR/USD 1.4819
Following a very quiet week in terms of movement much focus will now be placed on the Bank Of England Interest Rate decision on Thursday of this week to help determine the future direction of the GBP/EUR cross.
Any further quantitative easing would be viewed as Sterling negative by investors while an announcement that this scheme has reached and end would almost certainly bode well for the struggling Pound. If you have any upcoming requirement to either buy or sell Euros it would be well worth paying close attention to this release and any accompanying statements.
Last week The European Central Bank, (ECB) announced that they will be leaving interest rates on hold at 1% as had been widely forecast. However, they did announce plans to withdraw some of their existing stimulus measures, bringing to an end cheap fixed-rate loans to banks which had been introduced to encourage lending.
This has fueled speculation that the ECB may look to hike interest rates sooner than previously thought, although in accompanying statements key officials played this down which has prevented any significant Euro gains at least for the moment.
In other news, Euro zone inflation rose to the first positive reading for five months, should this continue it will only add to the speculation building on the ECB to increase interest rates, a luxury that The Bank of England can only dream as they battle to pull the UK economy out of recession.
Elsewhere, in a relatively quiet week for data, focus will be on German Industrial figures on Tuesday and inflation data on Wednesday.
All things considered it is difficult to see where Sterling is going to get any additional strength from making it vital for anyone with a need to buy Euros in the near future to speak with to their account manager about the various options to ensure you get the very best rate of exchange possible. Those selling would be wise to pay close attention to the Bank of England decision on Thursday, keeping fingers crossed for any Sterling negative sentiment and take advantage of the potential short term spikes.
GBP/USD traded in a relatively stable range in the early part of last week with the pound steadily climbing as high as 1.67 against the Dollar benefiting Dollar purchasers for most of the week. However, Friday’s Non Farm Payroll data saw the Pound slip by almost 2 cents by the end of the day.
Non Farm payroll is an important piece of data on the monthly economic calendar and shows the change in the number people employed in the US excluding the farming industry. It is widely regarded as a good indicator of the state of the US economy and as such often sees the markets swing heavily one way or the other depending on the results.
The figures showed that the US unemployment rate fell in November to 10%, down from 10.2% in October. In total, only 11,000 jobs went over the month – the smallest number since the recession began in December 2007. That was far fewer than the 130,000 expected by most analysts and was a very positive sign for the US economy and also the wider world economy as we emerge from the global recession.
This gave the dollar a boost and enabled it to track back some of the losses against the Pound sustained earlier in the week. However, many analysts are hoping there will be a knock on result and that the UK will post similar results with their employment data later in the month.
Before then the Pound is expected to have a rocky week ahead.
Analysts suggest the pound will come under pressure with the UK government’s pre-budget report on Wednesday expected to throw the spotlight on Britain’s ballooning debt as it pours money into the economy to drag it out of recession. To compound Sterling’s troubles, concern about the potential exposure of the British banking sector to Dubai’s debt troubles is also weighing heavily on the sterling. With this in mind, speak to your FCG account manager to discuss your options to ensure that you are protected against the volatility expected within the market.
Other influences on the market this week are the Bank of England interest rate and Quantitative easing meeting which are widely expected to remain unchanged. Whilst in the US risk appetite trends are likely to remain important to US Dollar performance, although Friday’s retail sales data will have bearing on the perception of US economic conditions.
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